Real gross domestic product (real GDP) is a
macroeconomic
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy
An economy is an area of the production, distributio ...
measure of the value of economic
output
Output may refer to:
* The information produced by a computer, see Input/output
* An output state of a system, see state (computer science)
* Output (economics), the amount of goods and services produced
** Gross output in economics, the value ...
adjusted for price changes (i.e.
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
or
deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflati ...
). This adjustment transforms the money-value measure,
nominal GDP, into an
index
Index (or its plural form indices) may refer to:
Arts, entertainment, and media Fictional entities
* Index (''A Certain Magical Index''), a character in the light novel series ''A Certain Magical Index''
* The Index, an item on a Halo megastru ...
for quantity of total output. Although GDP is total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by industry, excess of exports over imports, and government spending. Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate (raised to the power of units of time in which the rate is measured) to get the growth of the real GDP. Different organizations use different types of 'Real GDP' measures, for example, the
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD) is an intergovernmental organization within the United Nations Secretariat that promotes the interests of developing countries in world trade. It was established in 1964 by the U ...
uses 2005 Constant prices and
exchange rates while the
FRED
Fred may refer to:
People
* Fred (name), including a list of people and characters with the name
Mononym
* Fred (cartoonist) (1931–2013), pen name of Fred Othon Aristidès, French
* Fred (footballer, born 1949) (1949–2022), Frederico Ro ...
uses 2009 constant prices and exchange rates, and recently the
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
switched from 2005 to 2010 constant prices and exchange rates.
Economic sectors of nations using real GDP
Relationship with nominal GDP
Real GDP is an example of the distinction between real vs. nominal values in
economics
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analy ...
. Nominal gross domestic product is defined as the
market value
Market value or OMV (Open Market Valuation) is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with ''open market value'', ''fair value'' or ''fair market value'', although the ...
of all final goods produced in a geographical region, usually a country. That market value depends on the quantities of goods and services produced, and their respective prices.
If a set of real GDPs from various years are calculated, each using the quantities from its own year, but all using the prices from the same base year, the differences in those real GDPs will reflect only differences in volume.
An index called the
GDP deflator can be obtained by dividing, for each year, the nominal GDP by the real GDP, so that the GDP deflator for the base year will be 100. It gives an indication of the overall level of price change (inflation or deflation) in the economy.
:GDP deflator for year
Real GDP growth on an annual basis is the nominal
GDP growth rate adjusted for inflation. It is usually expressed as a percentage.
Nomenclature
Nomenclature (, ) is a system of names or terms, or the rules for forming these terms in a particular field of arts or sciences. The principles of naming vary from the relatively informal conventions of everyday speech to the internationally agre ...
: "GDP" may refer to "
nominal" or "current" or "historical" GDP, to distinguish it from the real GDP. The real GDP is sometimes called "constant" GDP because it is expressed in terms of constant prices. Depending on context, "GDP" may also refer to real GDP...
Notes and references
External links
Google - public data GDP and Personal Income of the U.S. (annual): Quantity Index for Real GDP
Google - public data GDP and Personal Income of the U.S. (annual): Real Gross Domestic Product
Google - public data GDP and Personal Income of the U.S. (annual): Real Gross Domestic Product per capita
{{DEFAULTSORT:Real Gross Domestic Product
Macroeconomic aggregates
National accounts
Gross domestic product